Option traders, has lot more flexibility to trade this setup. You may not know at the beginning but as you backtest or start using this strategy, you will learn it gradually and can fill this section later. This strategy starts with the day's range, which is simply the difference between the high and the low. Here the range is calculated as the difference between High and Low of the particular day. The rules can be adjusted for LONG entry by applying the same logic with minor adjustments.. The profit really comes from the strategy that you are most comfortable to trade with.
NR7 Trading Strategy (How To Trade The Narrow Range 7 Bar) This NR7 trading strategy is a price action trading strategy much similar to the NR4 trading strategy. In here you will learn about the NR7 pattern and how to trade it.
Again, this is very short-term-oriented and might not be suitable for all traders. Alternatively, profits can be taken near the next resistance levels or a percentage target can be used. For example, the stop-loss on a long position could be set two Average True Range values below current prices and trailed higher. The trading example shows Morgan Stanley with twelve signals in less than three months. The blue arrows show the NR7 candlesticks and the thin blue lines mark the high-low of the range.
A next day move above the high is bullish, while a next day move below the low is bearish. Notice that NR7 days formed back-to-back on three different occasions.
While not always the case, these back-to-back NR7 days did not result in different signals, they simply affirm the existing signal from the prior NR7 breakout. With nine signals in total, traders could have to watch price action close, exercise judgment, and manage stops. However, it is possible to scan for NR4 or NR7 days using the Advanced Scan Workbench to write the code, an example of which is provided in the next section.
More importantly, the Average True Range does show when the range is contracting or expanding. Most chartists will want to qualify NR7 signals because they are quite frequent. A typical stock will produce dozens of NR7 days in a twelve month period and a daily scan of US stocks will often return hundreds of stocks with NR7 days.
Chartists can increase or decrease the number of narrow range periods to affect the results. A decrease from NR7 to NR4 would increase the number of stocks fitting the criteria, while an increase from NR7 to NR20 would decrease the number of candidates. In general, the number of stocks meeting the criteria will increase as the narrow range period decreases and decrease as the narrow range period increases.
Chartist can also add other indicators to further qualify signals. Adding a trend indicator ensures that trades are in the direction of a bigger trend. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. Nor will it likely ever be. No representation or implication is being made that using the BacktestWizard methodology or system or the information contained within any BacktestWizard material will generate profits or ensure freedom from losses.
Identify a stock which has produced the narrowest high to low range of the past 7 days. Buy on a move above the high of the narrow range day. Go short on a move below the low of the narrow range day. Note that all of the 3 Short trades in the example below were profitable.
NR7 Trading Strategy Filters As stated by the author of the original article, because the NR7 signals are so frequent chartists will often want to use further filters to further qualify the signals. The NR7 Trading strategy has a close to linear equity curve.
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I. Trading Strategy
NR7 Trading Strategy: Low Risk High Reward Posted on October 3, by admin Narrow Range trading strategy or NR7 Trading strategy is a breakout based method which assumes that the price of a security trends up or down after a brief consolidation in a narrow range. The trading example shows Morgan Stanley with twelve signals in less than three months. The blue arrows show the NR7 candlesticks and the thin blue lines mark the high-low of the range. A next day move above the high is bullish, while a next day move below the low is bearish. Notice that NR7 days formed back-to-back on three different occasions. In this NR7 trading strategy, we looked for markets with a strong trend and used NR7 as a low risk entry point to join the trend. Do not follow the trading rules mechanically. Some NR7 bars appear at the high of a bull trend or the low of a bear trend.